Not For Profit – Structures

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NOT FOR PROFIT LEGAL STRUCTURE

When setting up a not-for-profit organisation, there are numerous structures that you need to consider – the best one for you will depend on what your organisation is engaging in and how it is operating.

The structure can affect certain aspects of the organisation such as its legal identity, who will be making decisions in the business, and who is liable for debts and other responsibilities in the organisation.

GLG Legal can assist you in determining the best structure for your NFP. Seeking professional advice in regard to this will be a long-term investment for your organisation, and will reduce legal issues as well as save time and money in the future.

 

INCORPORATED ASSOCIATION

An Incorporated Association is a legal entity that is often used for charitable and not-for-profit purposes – all profits of the organisation will go back into the activities of the NFP. This structure is best suited to organisations operating out of one state only and have limited ability to comply with reporting requirements of ASIC. As these organisations are state based, there are different laws regulating them in each state of Australia.

You must consider different aspects such as your budget, how you see the organisation operating in the future and how much admin work you are prepared for when determining if this is the structure for you.

It is possible to operate as an Incorporated Association across multiple states, however this usually will involve a lot more administrative duties and costs on your part. The options involve operating a separate Incorporated Association in each state or territory in which you wish to operate. The other option is to register as a Registered Australian Body (RAB) which will be regulated by ASIC and different bodies depending on the state of operation.

If you have a separate IA for each state, they will each be a separate legal entity. This means that they each must comply with the laws and legislations of the state they are operating in and maintain their own tax concessions that apply to NFP organisations. Consequently, there will be higher costs and more administrative and operating duties for the organisation. This may be a good option for you if you carry out different activities in each state, and therefore it would be suitable to have separate legal entities. Otherwise, if you are carrying on the same activities within your organisation throughout multiple states, utilising a Company Limited by Guarantee (CLG) or converting your IA into a CLG may be an option for you to consider.

You also could elect to convert your IA to a Company Limited by Guarantee if the circumstances of your operations change and you wish to operate throughout Australia. Converting the organisation allows you to continue operating as you were previously in the sense that contracts can continue under the new structure and will continue to be enforceable. Considering where you see the organisation in the future is important to avoid costs involved in changing the structure.
There are some things to consider first before making the decision to convert to a CLG, which is why it is best to seek legal advice regarding the best structure to suit the needs of your organisation. There potentially could be substantial costs and administrative practices that will be involved when converting the organisation, therefore this must be considered first.

GLG Legal can assist you in determining whether an IA structure is a good option for you, and also whether it would be beneficial for you to convert your organisation to a CLG if you are already established.

 

COMPANY LIMITED BY GUARANTEE

This form of structure is commonly used by not-for-profit organisations and charities who are operating across Australia. Given that this structure is a company, the organisation can own assets and sue in its own name. One of the main features of a CLG is that members have limited liability. Each member contributes an initial amount known as a guarantee (usually a nominal amount), and if the company is to be wound up the liability of each member is limited to the amount that they have guaranteed. If the company is wound up usually the amount members are required to pay will be defined in the company constitution.

Organisations under this structure are unable to issue shares and members are unable to receive dividends from profits. Therefore, these companies are unable to raise equity and are only suited to companies that have a limited need for capital such as not for profits. Profits will be reinvested into the company to fund operations and company goals and objectives.
A public company limited by guarantee will be registered under the corporations Act 2001, and therefore must comply with the extensive laws under this legislation.

It is especially important when setting up a CLG that you seek legal and professional advice. The law in this area can be quite complex and there also can be penalties for not complying with the applicable laws. You may also need ongoing professional assistance to comply with the reporting requirements of CLG.

 

CO-OPERATIVE

A Co-operative is a legal entity that is owned by and operates for the benefit of its members. The group must consist of at least 5 members, each of whom has equal voting rights and contributes to the operation of the co-op. Co-ops usually limit the distribution of profits to its members, or don’t allow any distribution, therefore the business structure is not suitable if you are looking to make a return on investment. There are rules and documents that must be developed in order for your co-operative to be approved and registered. Therefore, it is important to seek legal advice when setting up this structure to ensure it is the best structure for you and you comply with each of your obligations.

 

CHARTIABLE TRUST

One form of trust you could establish for your not-for-profit organisation is a charitable trust. This differs to other not-for-profit structures as it is not established to undertake a specific purpose, rather it exists in order to distribute funds to other organisations and charities to assist them in fulfilling their purpose.  Depending on the purpose of your organisation this may be suitable for your not-for-profit. If you have or are aiming to raise funds to distribute to a particular cause, this may be suitable. It is essential to obtain legal advice when setting up a trust as the laws surrounding this can be complex, and you will also be obliged to keep records, report to the ACNC and comply with various standards during your operations. 

Overall, there are numerous different structures that can be formed for NFP organisations, depending on your purpose, operations, budget and the goals of your organisation. Obtaining legal advice will ensure you establish the most suitable structure for your particular organisation and comply with all legal and regulatory requirements

 

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